Vacation Timeshare: Research Before Purchase

Do you enjoy vacationing every year at a favorite resort? If so, you have likely been approached to purchase a local timeshare unit. Before you sign a contract, there are three important questions you need to answer.

Timeshares have grown in popularity during the past twenty years. Overtime, what was once as simple as purchasing a single week per year at a specific resort, has turned into an offering with a variety of options including location flexibility, floating weeks, multiple weeks, and point-based reward programs.

Purchasing a timeshare is equivalent to prepaying for future vacations. While that may sound appealing and be totally appropriate for some consumers, it is important to understand the on-going obligations before you commit. Here are three questions to guide your decision.

Question #1: Do I consider a timeshare to be a financial investment?

If the answer is yes, you are better off opting out of a timeshare arrangement. A timeshare should be viewed as a commitment to vacations and quality time spent with your family and friends, rather than a solid financial investment.

Timeshares, once purchased, depreciate in value almost immediately. According to experts, the up-front marketing costs (free promotional items given to all potential buyers) associated with selling a timeshare represent 40-50% of the purchase price. For this reason, the value of a timeshare decreases right after it is purchased.

Additionally, because the timeshare is a personal use property, if you sell your timeshare for less than the purchase price, the IRS does not allow you to recognize a capital loss on your tax return.

Question #2: Can I afford to purchase and maintain the timeshare?

The purchase of a timeshare should only be considered if you can pay cash for 100% of the purchase price. Since timeshares immediately depreciate in value, they are not viewed as viable collateral. Therefore, banks are not likely to offer financing. This means that if a timeshare purchase is financed, it will likely be through the developer of the resort. In this situation, interest rates are usually high – think credit card interest rates. The high interest rates on timeshare “mortgages” offered by developers substantially increase the monthly payment and the overall amount you are paying for the timeshare.

Researching the ongoing fees related to a timeshare unit prior to purchasing is crucial. These annual costs may include maintenance fees, property taxes, and homeowners’ association dues. And, as with any fees, understand they are likely to increase in the future.

Question #3: Am I willing to own the timeshare unit forever?

Timeshare units prove to be extremely difficult to sell, especially for the original purchase price. Many owners, who no longer use their unit or can not afford the fees, are willing to simply give away their interest in the timeshare to rid themselves of the obligations of ownership. Even giving it away can present a problem.

The first place potential sellers go is back to the resort itself. Unless there is a high demand, it is unlikely that the resort will re-purchase your unit. Furthermore, the resort will not release you from your contract requiring the payment of annual fees.

Recently, a secondary market has developed and there are several websites where you can list your timeshare property. To start, go to www.sharket.com and determine the value and potential marketability of your unit. You can then consider listing your unit on a website designed for this purpose, such as www.redweek.com, www.tug2.net, and www.sellmytimesharenow.com, but you should expect to pay a fee. Some owners have listed their units for sale on www.eBay.com.

Those who are desperate to get rid of timeshares have the option of giving away units on certain websites. Be advised that you may be required to pay the new owner some amount in addition to receiving no value for your unit.

Another option is to hire a licensed real estate broker who specializes in timeshare units. Of course, this would come at an additional cost, but an individual who specializes in this area will have greater knowledge of the resale market.

If none of the above options prove to be successful, it is important to be aware that if ongoing fee payments associated with your unit are discontinued, foreclosure may commence and a collection agency will likely get involved. Caution: This could wreak havoc on your credit score!

Summary

While owning a timeshare can have its benefits, it can also have significant drawbacks. If you do your research properly; understand and are comfortable with the on-going costs; and are fully committed to long-term ownership, then purchasing the timeshare may be appropriate for you. However, if you are looking for a financial return on your investment or plan to be a short-term owner, there may be better options for your money.

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